Counterpoint: AT&T isn't cheating iPhone 3G customers

In my youth, I sold cell phones for Verizon. It was not a rare occurrence to have a customer sign up for a new account and get their free phone, only to come back a week later and tell me they dropped it in a toilet and wanted another one. They were shocked when the phone they got for free just a few days before now cost them close to $200.

To a lesser extent, the same thing is happening with iPhone 3G owners wishing to upgrade to the 3G S for the subsidized price. A year ago, 3G owners bought a $600 cell phone (assuming we're talking about the 8GB model) for just shy of $200. The 2-year contract guarantees that AT&T makes their $400 back over the length of your contract. So far, 3G owners are only about 1 year into their contract, so they've really only paid off about half of their subsidy to AT&T.

Most carriers would stop there, and offer no additional incentives until you've come close to reaching the end of your contract. AT&T is being about as generous as they can be by offering 3G owners half of the subsidy after completing half of their contract. Once 3G owners have fulfilled a year of their contract, they can get the 3G S for the base price ($199) plus half the subsidy ($200) for a grand total of $399.

Read on for some fun cell phone contract math.
Let's say, hypothetically, that a 3G owner takes advantage of this "early upgrade" offer from AT&T. That means this particular customer paid $200 for 3G and $400 for their 3G S, and has received $600 in subsidies from AT&T ($400 subsidy from the 3G, $200 for 3G S) over 3 years. This is a $200 subsidy per year, which is the exact same per-year subsidy you signed up for originally.

3G owners are complaining loudly about this policy, saying that AT&T should reward loyal customers with a 2-year subsidy on what is essentially a 1-year contract. That's a $200 discount per customer, per year. That's a huge hit to AT&T, and one they're not going to take. And I don't blame them.

Apple tried selling unsubsidized phones originally, and the price was a big pill to swallow for most customers. The subsidy means you get a little more for your money, but unfortunately it means you've got to play by AT&T's rules when it comes to upgrading. And, in this case, their rules seem pretty reasonable to me.

Believe me, I am no fan of AT&T. Coverage in my hometown of Peoria, Illinois leaves a lot to be desired, and no 3G yet, seriously?! And what's up with MMS and tethering at launch? And putting that annoying woman from The Hills in their commercials? They have a lot to answer for in my eyes, but in this particular case they're being about as generous as you can expect a cell phone carrier to be.

3G owners can take comfort in the fact that they can sell their current phone to make up for some of the cost of upgrading, and also that they still have an amazing piece of hardware that, through the 3.0 update, is about to become a whole lot more useful. It's almost like getting a whole new phone! Almost.